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A waitress poses with some coins in front of a cash-box of Danish crowns in a pub in Copenhagen, Jan. 22.Fabian Bimmer/Reuters

Denmark's central bank cut its benchmark rate for the third time in 10 days in an effort to defend the nation's currency peg.

The Copenhagen-based bank cut its deposit rate to minus 0.5 per cent, the lowest on record, from minus 0.35 per cent, it said in a statement today. It left its lending rate unchanged at 0.05 per cent.

"It is difficult to put a label on where the flows are coming from," Karsten Biltoft, head of communications at the bank, said by phone. "It is both domestic and foreign."

The bank, which doesn't hold scheduled meetings, said it reduced its main rate after selling kroner in the market. Svenska Handelsbanken AB estimates the central bank may have sold as much as 100-billion kroner ($15.3-billion U.S.) in January to weaken the currency. Denmark has struggled to defend its peg since the Swiss National Bank abandoned its currency cap on Jan. 15.

"Further rate cuts are still looming as long as we don't see any major impact on the krone," Rasmus Gudum, an economist at Handelsbanken in Copenhagen, said by phone. "Some investors are still looking at the Swiss and as long as Denmark hasn't gone to the same level as the SNB there will still be some testing the waters."

Free Float

As well as releasing the franc into a free float, the Swiss National Bank cut its main rate to minus 0.75 per cent from 0.25 per cent, on Jan. 15.

Denmark's central bank, government and business leaders have all argued that speculators who take on the krone would also need to bet against the European Central Bank, which backs Denmark's euro peg. According to the ECB agreement, efforts to support the peg should "in principle be automatic and unlimited."

Governor Lars Rohde's job is to target 7.46038 kroner per euro. While the bank's official tolerance band is 2.25 per cent, in practice it has stayed well within about 1 per cent of the target.

The Danish krone traded at 7.4441 against the euro at 4:15 p.m. in Copenhagen. That compares with 7.4475 at the beginning of the year.

For Denmark, "there are two instruments in the toolbox, interventions and rate changes, and those instruments remain in the toolbox to be used," Mr. Biltoft said.